By Liu Zongyi (3 December 2017) – Nepal is on the UN list of least developed countries (LDCs), and even though it has considerable potential, Chinese investors have found that it is hard to do business there.
In November, the Nepalese government decided to abandon a $2.5 billion deal to build the Budhigandaki Hydroelectric project dam with the Chinese State-owned China Gezhouba Group. The Chinese Enterprises Association of Nepal has 46 members, the majority of which are Chinese State-owned companies, but few of them have made a profit in the past 20 years.
Bilateral relations between China and Nepal have developed well, regardless of which party is in power in Nepal. Nepal’s openness to foreign direct investment (FDI) is high. It held an investment summit in March this year, and in May, Nepal and China sighed a framework agreement on China’s Belt and Road (B&R) initiative. But despite this open attitude to FDI, there are not enough concrete policies in place to make the most of it. There are also a lot of domestic factors in the country that impede further Nepal-China economic cooperation.
First of all, the continuous political instability in Nepal is not exactly conducive for economic cooperation. Nepal is a federal republic, and its system of government is that of a parliamentary democracy. The country is divided into seven provinces and 75 districts, and it has more than 70 political parties, most of which are small local parties. It’s common for provincial and local governments and ministries to be controlled by different parties.
This means that foreign investors in the country face regular political instability and continuous changes of government and leadership personnel.
A project must get permission from all the levels of government, or it cannot be conducted. In this process, corruption is another major problem.
Furthermore, due to frequent changes of government, national development plans cannot be conducted consistently. Western countries have created some national development plans for Nepal in the past, but these were not implemented. China would like to help Nepal make some development plans, but there may be an issue over which side will play the leading role in the process of drafting the development plans. And regarding some projects, such as the China-Nepal railway, Nepal has a lack of engineering and technical personnel, and these cannot be trained in a short time. China can help with planning and design, and feasibility studies, but the Nepalese side must have the willingness and mechanisms to cooperate.
As for the B&R initiative and the China-Nepal-India economic corridor, some people in Nepal are concerned that the country might become a theater of geopolitical competition between China and India. And many of the people in Nepal don’t trust the Indian government because of the economic blockade Nepal’s larger neighbor imposed in 2015, but ethnic and political divisions in Nepal have made the country too weak to challenge the status quo.
There are about 40,000 local NGOs and 270 International NGOs in Nepal. A lot of NGOs get funding from other countries, such as the US, Japan, India, and some European countries. Thus, these countries can influence Nepal’s domestic affairs though NGOs. The local people would be happy if the US supported Nepal on development issues, but nobody knows what the US aims are in Nepal.
As a good neighbor, China would like to cooperate with Nepal on economic development. Nepal is currently holding general and provincial elections. We hope the country can achieve political stability after the election and eliminate some of the hurdles that have affected China-Nepal economic cooperation.
The author is a senior fellow at the Shanghai Institutes for International Studies and a visiting fellow with the Chongyang Institute for Financial Studies, Renmin University of China. [email protected].
This article first appeared in Global Times